Natural Gas Poised to Move Higher

Prices of natural gas are poised to break out despite the recent selloff in the broader U.S. stock indices. Bullish sentiment increased amongst hedge fund traders according to the latest industry report. Despite record production of natural gas in the first quarter of 2014, inventory levels are well below the lower end of the 5-year range.

The UNG natural gas ETF (NYSEARCA:UNG) experienced a momentum buy signal on Monday as the MACD (moving average convergence divergence) generated a bullish crossover. The bullish MACD crossover is an excellent indicator to use to evaluate the beginning of an uptrend. The bullish crossover occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The MACD shows that positive momentum is increasing which is considered a leading indicator.

Monday’s close above trend line resistance is a positive sign for the UNG, as prices are poised to test the top end of the 6-week range near $26. Support is seen at an upward sloping trend line that connects the low in February to the recent low in March and comes in near $23.90. The weekly chart of the UNG shows that prices broke out above the 2013 highs, on very strong volume at the begging of 2014. Prices continue to trade above support which was former resistance near $24.10. Weekly support is also seen slightly below this level near the 20-week moving average at $23.23.

Positive sentiment is building as hedge fund traders purchased natural gas futures according to the most recent commitment of traders report (COT) released by the Commodity Futures Trading Commission for the week ending April 1, 2014. The COT reports on the changes to futures position every Friday, for the week ending the prior Wednesday. According to the CFTC report, managed money increased long futures and options on futures position by nearly 14K contracts while reducing short position by 2600 contracts.

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